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(Reuters) - KeyCorp's fourth-quarter adjusted profit beat estimates on Tuesday, as an improved macroeconomic and regulatory outlook boosted fees earned off advising clients on deals.
Investor optimism fueled by the U.S. Federal Reserve's interest rate cuts, coupled with anticipated deregulation and tax cuts under the Donald Trump administration, has accelerated deal activity.
KeyCorp's adjusted non-interest income was up 27% in the quarter. Its investment banking fees rose 63% to $221 million.
The bank's adjusted profit was 38 cents per share for the three months ended Dec. 31, beating analysts' average estimate of 33 cents, according to data compiled by LSEG.
Still, shares of the Cleveland, Ohio-based bank dropped 4% in premarket trading, as it took charges related to the loss on the sale of securities and maintained its forecast for net interest income growth in 2025.
INTEREST INCOME OUTLOOK
While banks are expected to benefit this year from normalization of deposit costs due to lower interest rates and a projected recovery in loan demand, the Fed is likely to cut rates by less than what analysts previously estimated, potentially limiting interest income growth across the industry.
KeyCorp expects its NII — the difference between what a bank earns off loans and pays on deposits — to grow roughly 20% in 2025. Analysts were expecting a 22% jump.
Truist analyst Brian Foran said the NII forecast came up a little short of expectations, driven by loan balances, which are yet to return to growth.
KeyCorp's NII benefited as it received capital proceeds from the first of three parts of Canada's Scotiabank's $2.8 billion investment for a 14.9% stake, announced in August.
The bank's NII rose about 14% to $1 billion in the quarter. Net interest margin, considered a key profitability measure for banks, expanded 34 basis points to 2.41%.
(Reporting by Ateev Bhandari and Arasu Kannagi Basil in Bengaluru; Editing by Shilpi Majumdar)